The Trans-Pacific Partnership Agreement Is a Dead End for Jobs

10/14/2015 12:11 EDT
|
Updated
10/14/2016 05:12 EDT

John Jacobs
Research Associate, Canadian Centre for Policy Alternatives.

PETER PARKS via Getty Images

A family photo shows trade ministers from the Trans-Pacific Partnership (TPP), a pan-Pacific trade agreement from 12 nations (L-R) Lim Jock Hoi from Brunei Darussalam, Ed Fast from Canada, Andres Rebolledo from Chile, Akira Amari from Japan, Sri Mustapa Mohamed of Malaysia, Andrew Robb from Australia, Mike Froman from the US, Ildefonso Guajardoform Mexico, Tim Groser from New Zealand, Jorge Del Castillo from Peru, Lim Hng Kiang from Singapore and Tran Quoc Khanh from Vietnam, in Sydney on October 26, 2014. The TPP, which would encompass 40 percent of the global economy and include 12 nations, has been the subject of negotiations for years. AFP PHOTO/Peter PARKS (Photo credit should read PETER PARKS/AFP/Getty Images)

ADVERTISEMENT

Canada used to excel at industrial strategy, but now we are satisfied with trade, and any type of trade will do. Some will say that old economic project is dead (or should be). They suggest it's futile to want to graduate up the export food chain -- from iron ore to steel, from steel to airplanes -- because "the market" demands we specialize in what we're best at. If it's oil, gold and raw materials instead of auto parts, so be it.

That hands-off mentality, which is at the heart of global trade deals like the recently concluded Trans-Pacific Partnership (TPP), goes some way to explaining why Canada's trade deficits are growing, faster with free-trade partners than other countries, and the job intensity of our exports is declining. It's a main reason we should not accept government claims the TPP will be good for jobs.

An estimated 580 direct jobs can be attached to each $1 billion in exports from the extractives sector whereas the same amount of trade in manufactured goods produces 2,300 jobs -- four times the jobs creating power of extractive industries. Statistics Canada data indicates that extractives comprise 21 per cent of value-added exports but only four per cent of employment. Compare that to manufacturing, which provides 52 per cent of value-added exports and 40 per cent of employment.

There is little hope the TPP will reverse this trend and its proponents know this. Globally tariffs are at all-time lows. As a result of multilateral trade agreements (WTO) and existing Canadian FTAs, 97% of Canadian exports enter TPP countries tariff free. Because the remaining tariffs are already so low, most economists project a negligible economic upside for Canada of 0 per cent to 0.22 per cent GDP growth by 2025. This could explain why the government never released a detailed economic impact assessment before agreeing to the deal in Atlanta this week.

Extractive industries have always been, and will continue to be, part of the Canadian economy, but historically governments have sought to balance raw material exports with induced growth in the manufacturing sector. This has included initiatives to generate spinoffs for the Canadian economy from mining, such as by increasing the level of processing before exporting commodities.

But these measures are largely prohibited in modern free trade deals from NAFTA onwards. The TPP will further remove governments' ability to take initiatives that might foster a more diverse and job-intensive economy. We're going back to the future, at least in terms of goods exports, as proverbial hewers of wood and drawers of water.

Canadian business groups counter this by pointing to Canada's successful service exports (finance, business services, etc), but they have trouble pointing to where the TPP will improve these firms' existing mostly open access to Asian markets, or how this will produce jobs at home.

Canada is exporting goods that create few domestic jobs and importing goods that create jobs elsewhere. This accounts for some of the decline in manufacturing employment over the past decade in Canada and points to long-term challenges in creating jobs and increasing wages. The exchange rate volatility associated with being a "mining and energy superpower" has also contributed to the decline in manufacturing jobs. For workers, Canada's free trade experience is one of stagnating wages, increasing income inequality, and relatively higher levels of unemployment.

The TPP, like all modern "free trade" agreements, contains no concrete measures to directly protect or create employment. On the contrary, it ties governments' hands in pursuing employment and industrial strategies. Jobs are simply assumed to follow automatically from tariff reduction and providing increased protection for investors. They, and not the government, should have complete freedom to decide when, where and how goods and services are produced. Recent history tells us that companies have a poor track record when it comes to translating this freedom into jobs or growth.

Ultimately, though the TPP is not about trade or increasing prosperity for most Canadians, one can understand why Canada's corporate elite are cheer-leading the deal. It entrenches their role as drivers of the Canadian economy and "consitutionalizes" their rights to profitably exploit Canada's resources. For the rest of Canadians, accepting the TPP will have long-term detrimental impacts on the prospects for full employment, economic prosperity, and the ability of Canadians to sustainably manage their economy.